For many, free help is biggest tax break

Sunday

Jan 29, 2012 at 12:01 AMJan 30, 2012 at 4:23 PM

Kia Cox's federal income-tax refund is much smaller than last year but a boon to her household budget nonetheless. 'I can get her some new clothes and some diapers,' Cox said, referring to her 15-month-old daughter Mai'jaia and the $338 refund coming her way.

Jill Riepenhoff, The Columbus Dispatch

Kia Cox’s federal income-tax refund is much smaller than last year but a boon to her household budget nonetheless.

'I can get her some new clothes and some diapers,' Cox said, referring to her 15-month-old daughter Mai’jaia and the $338 refund coming her way.

Cox, 29, was among the first in line yesterday for the kickoff weekend of free tax-preparation clinics that are offered throughout tax season to those with low to moderate incomes.

The returns generally are simple to complete because the bulk of the rules, loopholes and tax breaks listed in the 72,000-page U.S. Tax Code don’t apply to workers such as Cox.

The fairness of the U.S. Tax Code came into question last week when Republican presidential candidate Mitt Romney released his tax returns. Because his income came from capital gains and dividends rather than from paid work, he was taxed at a lower rate than most middle-income workers.

Even among millionaires, there are huge differences in how much they pay in taxes. Romney was taxed at a 15?percent rate while Republican presidential contender Newt Gingrich was taxed at 31 percent.

“The conversation is not about the election or Republicans or Democrats. It’s about what’s the fair share for the people really up there,” said William A. Raabe, an accounting and taxation professor at Ohio State’s Fisher College of Business, which runs one of the free tax clinics.

To make things fair, Raabe said, everyone needs to pay more.

More than a third of all taxpayers will receive a full refund of the federal income taxes they paid in 2011. It’s the sole tax break for the working poor, Raabe said.

If Congress charged $10 a month to low-wage earners, increased the tax rate by 1?percentage point on middle-tier incomes and raised the tax rate on carried interest among the millionaire group, “the deficit goes away overnight and there’d be money left over,” he said.

Federal income taxes represent one slice of the tax pie. There also are sales taxes, gasoline taxes, and state and local taxes, to name a few.

In Ohio, when all taxes are combined, those in the lowest income bracket pay a tax rate that is double that of those with the highest incomes, according to a 2009 study by the Institute on Taxation and Economic Policy, a Washington, D.C.-based nonpartisan tax-research organization.

“Every other aspect of our tax system falls disproportionally on low-income people,” said Matthew Gardner, the institute’s executive director.

But middle-income workers are squeezed, too. In 2009, workers with adjusted gross incomes of $45,000 received 1.7 percent of the tax breaks while those in the top income bracket got 70?percent of the breaks, Gardner said.

IRS data show that those with incomes exceeding $1?million represent less than 0.002 percent of all tax filers. Those with incomes less than $50,000 represent more than two-thirds of all taxpayers.

“The tax cuts are going to a very small group. It’s unbelievable this concentration of income,” he said.

It’s unlikely, even with growing cries of inequities, that much will change, experts say. The last major overhaul to the tax code in 1986 resulted in changes on less than 10 percent of the pages, Raabe said. “The politicians are unmotivated to make it simpler.”

Cox, a single mother who works as a customer-service representative for the Ohio Department of Public Safety, is grateful for the help of the Ohio State students who prepared her tax returns yesterday. The task was too daunting for her.

She knew she was going to receive less than her $3,000 refund of last year. She decreased her paycheck withholding to keep more of her money each week to help pay medical bills from her daughter’s premature birth.

“She was so ill,” Cox said. “It’s been really hard.”

jriepenhoff@dispatch.com

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